SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following Coronado Community Development Agency, California's (the agency) tax allocation bonds (TABs) at 'A+':
--$110.2 million series 1996, 2000, 2003, 2005, and 2006;
--$9.2 million housing TABs, series 2003.
The Rating Outlook is Stable.
SECURITY
The non-housing portion of the TABs are secured by 80% of the tax increment received by the agency, while the housing portion of the TABs are secured by housing set-aside revenues of 20%. The agency receives 32.44% of total tax increment.
KEY RATING DRIVERS
SOLID COVERAGE: Debt service coverage ratios (DSCR) continue to strengthen as assessed value (AV) reaches new highs. Fitch still calculates separate housing and non-housing bond DSCRs according to the original bond indenture.
STABLE TAX BASE: Project area AV is characterized by its stability with no loss in value even during the recent recession. Taxpayer concentration is moderately low, and the local economy benefits from above-average income levels and its tourism focus due to its desirable location.
COMPLIANCE WITH DISSOLUTION PROCEDURES: Dissolution-related (AB 1X 26) risks are being mitigated. Management is adhering to indenture requirements, providing timely continuing disclosure reports, and giving payment priority to debt service.
NO IMPACT FROM ANALYTICAL REFINEMENT: In 2014, Fitch refined its analysis of California TABs and is now considering their liens to be effectively closed and surplus housing revenues to be available to pay non-housing debt service. This action did not result in a material improvement of the TABs' credit risk profile.
RATING SENSITIVITIES
AV CUSHION: The rating is sensitive to shifts in the project area's economic strength and tax base performance. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Coronado is a wealthy residential and recreational community located across the San Diego Bay from downtown San Diego. The agency's project area is nearly contiguous with the city boundaries.
STABLE ECONOMY
The city is essentially built-out with residential properties accounting for 86% of AV. The local economy is driven by tourism but also benefits from a large military presence. The navy base, which is not part of the project area, includes the Naval Air Station North Island, and the U.S. Navy Amphibious Base is the city's largest employer followed by hotels and resorts. Hotel Del Coronado, the largest taxpayer, accounts for almost 10% of total incremental value, while the other nine out of the top 10 taxpayers, most of which are hotels or resorts, together account for another 6%.
The county's unemployment rate (as a proxy) was 4.9% in May 2015, a further improvement from 7.5% two years ago. Median household income levels are above average, at 121% of the national level. Median house price in the city is well above $1 million, indicating high wealth levels.
RESILIENT AV GROWTH, SOLID COVERAGE
Project area AV never experienced any declines even at the depth of the housing-led recession. The AV growth rate averaged 5.6% per year over the last eight years, providing the backdrop for stable to growing coverage numbers, given level debt service.
Maximum annual debt service (MADS) coverage for 2016 is 2x and 2.5x, for non-housing and housing bonds respectively. The project area is mature, as reflected in the high incremental value (IV)-to-base value ratio of almost 7x. As a result, AV would have to drop by more than 44% to lower non-housing MADS down to 1x. Similarly, the project area is able to withstand various stress tests conducted by Fitch while meeting debt service, such as continual AV declines, loss of leading taxpayers, and additional appeals. Total appeals are less than 5% of AV, according to disclosure documents, and have been conservatively estimated at 5% under Fitch stress scenarios.
COMPLIANCE WITH DISSOLUTION PROCEDURES
Dissolution-related (AB 1X 26) risks are lessening as management is continuing to adhere to indenture requirements, timely and robust continuing disclosure reports are being provided, and debt service reserves are being used to mitigate dissolution-related cash flow issues. Since dissolution, the successor agency's procedures to manage dissolution have become well-established, lessening operational risks.
Funds available for housing and non-housing bonds are no longer separately tracked under the recognized obligation payment schedule (ROPS) process with the state department of finance. Fitch calculates separate DSCRs based on the 80%/20% split available to the non-housing and housing portions of the bonds, according to the original bond indenture. The coverage numbers were not materially different to warrant a rating distinction before dissolution (AB 1x26), and therefore comingling of funds is not material to the rating.
REDEVELOPMENT DISSOLUTION - NEUTRAL TO POSITIVE IMPACT
In May 2014 Fitch refined its California RDA analysis pertaining to the beneficial impact of dissolution legislation (AB 1X 26). Fitch now considers TAB liens to be closed and surplus housing revenues to be available for non-housing TAB debt service. Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs.
Although Fitch views these factors as positive credit characteristics, they were not sufficiently material to result in a positive rating action.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and Zillow.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989927
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989927
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.